Trustees should keep a 'beady-eye' on the voting principles of the asset managers employed to handle their investments in order to help prevent 'outrageous' remuneration packages for directors at the companies charities invest in, according to campaigning group FairPensions.
The lobby group, itself a registered charity, has produced a guide of questions to ask asset managers as FTSE companies enter their busy AGM period from April to July.
The briefing aims to encourage closer attention by asset managers to practices such as 'golden handshakes', transaction-related bonuses, and variable pay which has the potential to be over 200 per cent of the base salary, ahead of casting their votes.
“Every company that is UK-listed has to put to a vote of its shareholders its proposals for remuneration of executive directors of a company," explains Catherine Howarth, chief executive of FairPensions. "The shareholders can either vote in approval or they can vote down the proposals made by the company.
"We want to encourage trustees of charities that have investments to make sure the fund manager, whom they delegate the voting responsibility that comes with the shares, to use the report. We want to alert trustees to the fact that a lot of fund managers do vote in support, virtually automatically of the remuneration proposals put up by the company. And sometimes that’s not appropriate.”
The Executive Remuneration 2012 Briefing for Charity Trustees document quotes statistics produced by Op Cit 1 and Manifest and MM&K stating that in 2010, 9 per cent of remuneration reports recorded a vote against of 20 per cent or more, less than 4 per cent recorded a vote against of 30 per cent or more.
Howarth advises that there is an array of reasons why asset managers so readily approve pay packages, but a key reason is that they often feel pressured to approve the pay packages due to open disclosure and seek "an easy life" in doing so. Yet while that is the case, she said it is important that voting is transparent:
“Voting disclosure is something that the managers decide whether or not to do. Obviously if you’re a charity which invests through a particular fund manager, you have the right to know how the votes are cast on your behalf, but they’re not always publicly disclosed. We’re very much pushing for public disclosure," she said.
Why is FTSE executive pay important to my charity?
Howarth said that the importance of this issue spreads into both financial and ethical concerns of a charity.
“Often remuneration proposals are pretty outrageous and they’ve given rewards to directors that are completely out of proportion to the actual investment returns that the real share-owners ie the charities are getting.
"I know that for some charity investors it goes beyond just a question of ‘I’m concerned that this could be bad value for me as an investor' but some of them feel that these executive pay proposals are exacerbating inequality in society generally with long-time social detriment. So as part of their charitable mission they might see this as a topic of extra interest," she said.